25 February 2014
4QCY13 Results Update | Sector:
Healthcare
Sanofi India
BSE SENSEX
20,852
Bloomberg
S&P CNX
6,200
SANL IN
CMP: INR2,640
TP: INR2,965
Neutral
Equity Shares (m)
23.0
M.Cap. (INR b) / (USD
60.8/1.0
b)
52-Week Range (INR) 2,940/2,225
1, 6, 12 Rel. Per (%)
1/-5/6
Financials & Valuation (INR Million)
Y/E Dec
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr (%)
BV/Sh(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2013 2014E 2015E
17,065 19,448 22,165
2,955
2,144
82.2
7
581
17.9
26.3
32.1
4.5
3,507
2,895
125.9
53
655
19.2
27.6
21.0
4.0
4,090
3,410
148.3
18
751
19.7
28.5
17.8
3.5
Sanofi India's 4QCY13 result was above estimates with revenue growing 15% YoY
to INR4.6b (v/s est. INR4.7b), EBITDA growing 71% YoY to INR867m (v/s est.
INR684m) and reported PAT growing 107% YoY to INR928m (v/s est. INR566m).
However, the company reported exceptional income of INR254m from sales of
certain non-trade investments, adjusted for which PAT stood at INR674m.
EBITDA margins expanded by 610bps YoY to 18.8% (v/s our est. 14.7%) on a low
base of 4QCY12. Management has attributed this to stronger than expected
performance in export business.
PAT growth was boosted primarily by strong operational performance.
Valuation and view
SANL’s operational performance has witnessed a significant ramp up in 2HCY13.
We attribute this to (a) strong export led growth in CY13, (b) discontinuation of
loss making rural initiative Prayas (annual loss of INR300-320m) and (c) complete
reorganization in terms of advertising spend and field force of the acquired OTC
business of Universal Healthcare. In addition, only one key product from SANL’s
portfolio (Clexane) was impacted by the new DPCO.
We believe SANL is witnessing a phase of a change in margin profile led by a)
pricing benefit under new DPCO based on WPI and b) discontinuation of some
loss making projects which hurt margins in the past.
Post the 4QCY13 performance; we have upgraded our EPS estimates for
CY14E/15E by 8%/8%, mainly to reflect improving profitability of the business.
Based on our estimates, the stock is valued at 21x CY14E and 17.8x CY15E EPS.
We maintain
Neutral
with target price of INR2,965 (20x CY15E EPS).
Alok Dalal
(Alok.Dalal@MotilalOswal.com); +91 22 3982 5584
Hardick Bora
(Hardick.Bora@MotilalOswal.com); +91 22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.

Sanofi India
4QCY13 performance was above estimates
Net sales grew 15% YoY to INR4.6b (v/s est. INR4.7b) for 4QCY13.
EBITDA grew 71% YoY, faster than the topline growth of 15%. Management has
attributed this to stronger than expected performance in export business. We
believe that the company has benefited from the INR depreciation.
PAT grew 107% YoY to INR928m and was well above our estimate of INR566m,
aided by strong operational performance. However, the company reported an
exceptional income of INR254m from sale of non-traded investments. PAT growth
was also partially aided by lower than expected depreciation.
Revenue trend
Source: Company, MOSL
EBITDA and EBITDA margin trend
Source: Company, MOSL
25 February 2014
2

Sanofi India
Domestic formulations – line extensions/ volume growth in key products to
drive revenue
We believe SANL is well placed to benefit from the introduction of product
patents, given its strengths in marketing, a supportive parent and a healthy
product pipeline (of NCEs). In addition, the company would be focusing on line
extensions for key products which along with volume growth in top products
would be the key revenue driver for the next few years
SANL’s history of launching patented products in India, a well mapped portfolio
vis-à-vis the parent, and ability to build them into big brands makes it one of the
potential beneficiaries of the product patent regime in India. Further, the
company is planning to strengthen its portfolio in diabetes segment.
We believe that the patent regime will bring in significant benefits for SANL,
albeit in the long-term. The company is yet to give any long-term visibility on
launch of patented products in India.
The parent (Sanofi-Aventis) currently has 60 projects in research and
development, including about 33 in late stage (Phase II & III) development and
registration. About 20% of the product development pipeline consists of
vaccines. The table below gives details on the parent’s R&D pipeline:
SANL: Parent's NCE Pipeline
Therapeutic area
Oncology
Diabetes solutions
Cardiovascular Diseases
Immune mediated diseases
Infectious diseases
Ophthalmology
Rare diseases
Aging
Vaccines
Total
Phase I*
8
0
3
2
0
4
2
4
3
27
Phase II
3
0
1
4
3
1
1
3
3
19
No of projects
Phase III
Registration
1
0
1
1
1
0
1
1
0
0
0
0
1
0
1
0
5
1
11
3
Total
12
2
5
8
3
5
4
8
12
60
* Includes one Phase I project addressing an undisclosed target; Source: Sanofi
25 February 2014
3

Sanofi India
Rural initiatives has taken a backseat, scale up of OTC products a key focus
SANL was one of the few MNCs that entered the rural markets at an early stage.
The company’s rural initiative ‘Prayas’ made a penetration in 14 Indian states.
The project has engaged more than 10,000 doctors and conducted over 2,000
workshops.
Rural division generated revenues of Rs185mn in CY10. However due to the
scale of the project, Prayas was not expected to break even over the next 3
years.
Our on the ground checks suggest that business in rural areas have been a
challenge for the company and the journey has not been as smooth as
envisaged earlier. SANL is now looking at 'rural in metro' concept (eg: a slum
called Dharavi (rural) in Mumbai (metro)) to improve productivity but further
expansion into semi-urban/rural areas would be a challenge
SANL seems to have made good progress in the Universal Healthcare business.
The OTC business (acquired Universal Health in Aug 2011 for USD 100m,
EV/Sales of ~5x) witnessed a growth of 30% in CY12 over CY11. However the
nutraceuticals business is discretionary in nature and is likely to see a slowdown
in growth in CY13 in line with the slowdown being witnessed by the
nutraceuticals segment.
Valuation and view
SANL’s operational performance has witnessed a significant ramp up in 2HCY13.
We attribute this to (a) strong export led growth in CY13, (b) discontinuation of
loss making rural initiative Prayas (annual loss of INR300-320m) and (c) complete
reorganization in terms of advertising spend and field force of the acquired OTC
business of Universal Healthcare. In addition, only one key product from SANL’s
portfolio (Clexane) was impacted by the new DPCO.
We believe SANL is witnessing a phase of a change in margin profile led by a)
pricing benefit under new DPCO based on WPI and b) discontinuation of some
loss making projects which hurt margins in the past.
Post the 4QCY13 performance; we have upgraded our EPS estimates for
CY14E/15E by 8%/8%, mainly to reflect improving profitability of the business.
Based on our estimates, the stock is valued at 21x CY14E and 17.8x CY15E EPS.
We maintain
Neutral
with target price of INR2,965 (20x CY15E EPS).
25 February 2014
4

Sanofi India
Sanofi India: an investment profile
Company description
Sanofi India (60% subsidiary of Sanofi Aventis, France)
is the fifth largest MNC and among top 15 formulation
players in India. Company has built a robust franchise
in chronic therapies like anti-diabetes, oncology and
CVS, thus realigning its domestic portfolio with the
parent.
Possible pre-grant and post-grant patent challenges
by domestic generic companies could hamper the
plans and prospects to launch patented product.
Recent developments
None
Key investment arguments
Valuation and view
SANL is well-placed to benefit from the
introduction of product patents, given its
strengths in marketing, a supportive parent and a
healthy NCE product pipeline of parent company.
Its history of launching patented products in
India, a well-mapped portfolio vis-à-vis the parent
and ability to build them into big brands make it
one of the potential beneficiaries of the product
patent regime in India.
SANL is among the few companies which are
focusing on rural India. Given the increasing
disposable income, various government initiatives
to improve rural healthcare infrastructure and
low competition, it may benefit from an early
entry into this segment.
Biggest risk to SANL could be the implementation
of new pharmaceutical policy in the current form.
The new policy proposes to significantly increase
the span of control by bringing a total of 348
drugs under price control. This could severely
impact the profitability of its business.
SANL will be one of the key beneficiaries of the patent
regime in the long term. In the long term, focus on
growing strategic brands and strong support from the
parent will augur well for the company.
The stock is valued at 21x CY14E and 17.8x CY15E
earnings. We maintain
Neutral
with a target price of
INR2,965.
Sector view
Key investment risks
The domestic market is expected to witness 14-15%
growth, with gradual increase in the low penetration
levels - companies with strong brands and marketing
muscle to benefit.
IPR regime unlikely to lead to any major change in the
near term; MNCs and large Indian players to gain over
the longer term.
We are bullish on MNCs whose domestic portfolio is
well-aligned with its parent and where risk of conflict
with 100% subsidiaries is limited.
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
CY13E
CY14E
CY13E
CY14E
CY13E
CY14E
CY13E
CY14E
Sanofi
25.3
21.0
4.5
4.0
3.4
2.8
19.7
15.8
GSK
53.7
43.2
12.7
9.1
6.9
6.3
30.9
23.1
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
CY14
CY15
125.9
148.3
Consensus
Forecast
106.7
140.4
Variation
(%)
18.0
5.6
Target price and recommendation
Current
Price (INR)
2,640
Target
Price (INR)
2,965
Upside
(%)
12.3
Reco
Neutral
Shareholding pattern (%)
Dec-13
Promoter
Domestic Inst
Foreign
Others
60.4
12.5
15.8
11.3
Sep-13
60.4
12.5
15.6
11.5
Dec-12
60.4
14.9
13.4
11.4
Stock performance (1-year)
25 February 2014
5

Sanofi India
Financials and valuation
Income statement
Y/E December
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
Margins (%)
2012
14,939
21
2,335
15.6
907
1,428
14
1,204
0
2,617
851
32.5
0
1,767
1,767
-8
12
2013
17,065
14
2,955
17.3
923
2,032
4
1,603
254
3,377
1,233
36.5
0
2,144
1,890
7
13
(INR Million)
2014E
19,448
14
3,507
18.0
1,025
2,482
4
1,811
0
4,288
1,394
32.5
0
2,895
2,895
53
15
2015E
22,165
14
4,090
18.5
1,051
3,039
4
2,017
0
5,052
1,642
32.5
0
3,410
3,410
18
15
Ratios
Y/E December
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2012
76.7
116.1
518.0
33.0
50.0
34.4
22.7
5.1
3.8
24.2
1.2
14.8
21.5
1.3
24.1
66.6
58.4
0.0
2013
82.2
122.3
581.1
45.0
56.0
32.1
21.6
4.5
3.4
19.7
1.7
17.9
26.3
1.4
25.3
72.7
59.2
0.0
2014E
125.9
170.4
654.7
45.0
41.5
21.0
15.5
4.0
2.8
15.8
1.7
19.2
27.6
1.4
25.0
74.0
60.0
0.0
2015E
148.3
194.0
750.8
45.0
35.2
17.8
13.6
3.5
2.4
12.9
1.7
19.7
28.5
1.4
25.0
74.0
60.0
0.0
Balance sheet
Y/E December
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2012
230
11,700
12,041
0
213
12,254
5,441
3,150
2,291
546
4
8,770
2,725
986
4,289
771
4,059
2,392
1,668
4,711
12,254
2013
230
13,134
13,467
7
367
13,841
7,684
4,073
3,610
546
2
10,087
3,400
1,183
2,644
2,860
4,607
2,770
1,837
5,480
13,841
(INR Million)
2014E
2015E
230
230
14,828 17,038
15,161 17,370
0
0
367
367
15,528 17,737
8,084
8,484
4,599
5,150
3,485
3,334
546
546
2
2
13,653 17,333
3,943
4,494
1,332
1,518
5,448
7,981
2,930
3,340
5,861
6,680
3,197
3,644
2,664
3,036
7,792 10,653
15,528 17,737
E: MOSL Estimates
Cash flow statement
Y/E December
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2012
2,335
0
0
1,204
-722
810
3,626
-783
0
0
-783
0
0
-14
-883
-897
1,946
2,342
4,289
2013
2,955
0
0
1,603
-1,079
-2,413
1,320
-1,751
2
0
-1,749
-17
7
-4
-1,201
-1,215
-1,645
4,289
2,644
(INR Million)
2014E
3,507
0
0
1,811
-1,394
492
4,416
-400
0
0
-400
0
-7
-4
-1,201
-1,212
2,804
2,644
5,448
2015E
4,090
0
0
2,017
-1,642
-328
4,138
-400
0
0
-400
0
0
-4
-1,201
-1,205
2,533
5,448
7,981
25 February 2014
6

Sanofi India
NOTES
25 February 2014
7

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Sanofi India
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SANOFI INDIA LTD
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25 February 2014
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8